Did FDR Prolong the Great Depression or Lead the Nation Out of It?
Did Franklin Roosevelt's policies lessen the shock of the Great Depression, or did they make it worse? Even though FDR has been gone now for almost 80 years, debate on this subject lives on, and like much else in these polarized times, opinions often depend on one's ideology. Let's try to take an objective look at this question, and if a conclusion can't be reached, let's at least look at the competing arguments on the question.
The Great Depression wasn't just an American problem, it was a severe and world -wide economic collapse. Many equate it with the stock market crash that took place on "Black Thursday", October 24, 1929, but the causes of the Great Depression run much deeper than just one day on Wall Street. By the time that Roosevelt came into office on March 4, 1933, the banking system had collapsed, and nearly 25% of the labor force was unemployed. Prices and productivity had both fallen to a third of their 1929 levels andthis resulted in lower incomes in wages, rents, and profits throughout the entire US economy. Factories, mills and mines closed and farms and homes were lost to foreclosure. Most tragically, many people went hungry. At the height of the Depression in 1933, 12,830,000 people ( 24.9% of the total work force) were unemployed. This did not include farmers who, though technically not considered to be unemployed, faced massive decreases in farm commodity prices, such that they could not sell crops for near the cost of growing them. As a result, many farmers lost their land and homes to foreclosure.
The depression caused many in the work force and from farming communities to migrate from their homes in search of work. These migrants would build shanty towns known as "Hoovervilles." In the midwest, the effects of the Depression were made worse by drought and dust storms, causing many to abandon their farms and look for work elsewhere. Many men rode the rails as "hobos" in search of work.
In his speech accepting the Democratic Party nomination in 1932, Roosevelt pledged to bring about "a New Deal for the American people." Following his inauguration as President on March 4, 1933, in the first hundred days of his new administration, FDR pushed through Congress a package of legislation designed to lift the nation out of the Depression. He declared a "banking holiday" to end the runs on the banks. he also created new federal programs administered by a number of "alphabet agencies" from the AAA (Agricultural Adjustment Administration) to the WPA (Works Progress Administration.) These agencies provided jobs to thousands of unemployed Americans in construction and other projects across the country. The NRA (National Recovery Administration) sought to stabilize consumer goods prices through a series of codes. FDR hoped that through employment created by the state and price stabilization, he would put the nation on the road towards recovery.
Roosevelt's New Deal recovery programs were in large measure based on experimentation, though his experiments sometimes contradicted one another. Roosevelt himself said, “It is common sense to take a method and try it; if it fails, admit it frankly and try another.” After a period of gradual recovery, another major recession hit in 1937. Following that recession, Roosevelt adopted the theory of British economist John Maynard Keynes that expanded deficit spending was needed to stimulate aggregate demand. In 1938 the Treasury Department designed programs for public housing, slum clearance, railroad construction, and other massive public works. Many of these were cancelled after more massive public spending was required when World War II broke out, and war-related export demands and expanded government spending led the economy back to full employment capacity production by 1941.
Roosevelt's critics argue that the President was wrong to try to raise prices by creating artificial shortages. They also argue that the Agricultural Adjustment Act of 1933 provided for acreage and production controls, restrictive marketing agreements, and regulatory licensing of processors and dealers “to eliminate unfair practices and charges,” rewarding farmers who cut back production. They cite this as folly at a time when millions could hardly feed and clothe their families, and are at a loss to understand why a program designed to make food and fiber more expensive at that time made any sense.
Almost everyone agrees that Roosevelt’s National Industrial Recovery Act of 1933 was a mistake. It allowed the President to license businesses or control imports to achieve the objectives of the act that were vague at best. To administer the act, Roosevelt established the National Recovery Administration and named General Hugh Johnson. The policy was enforced by a vast system of agents and informers. Eventually the NRA approved 557 basic and 189 supplementary codes, covering about 95 percent of all industrial employees. Big business dominated the writing and implementing of the codes which protected their interests and suppressed competition. These codes included minimum pricing, standardization of products and services, and advance notice of intent to change prices.
Several programs created through the New Deal did have a lasting positive impact on the U.S. economy. which was flagging throughout the 1930s, among them the Social Security Act, which provided income for the elderly, disabled and children of poor families. The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation, which effectively insured the savings of Americans in the event of a bank failure, which was all too common at the time.
Roosevelt's critics assert that FDR and Congress embraced interventionist policies that went too far.and that the New Deal created so much confusion, fear, uncertainty, and hostility among businessmen and investors that private investment never recovered enough to restore the high levels of production and employment enjoyed in the 1920s. They cite the slow rate of recovery, noting that in 1939, ten years after the start of the depression, 9.5 million persons, or 17.2 percent of the labor force, remained officially unemployed.
A Wall Street Journal opinion piece written in February of 2009 argues that the Depression should have been followed by a vigorous recovery, like every other cycle, but it wasn't. They note that productivity grew very rapidly after 1933, and real interest rates were low. They note that some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. Then authors assert that these policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.
Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist state. Keynesian economics became the most influential economic school in the United States during the 1970s and the 1980s.
It is impossible to determine with any level of confidence whether or not, as a whole, FDR's New Deal prolonged the Great Depression or led the country out of it. Like almost all economic policies, it had benefits and detriments, and it left winners and losers. Supporters praise the New Deal for recognizing the government's role in providing compassionate support for those suffering in times of severe economic distress and in creating the social security system. Critics argue that it has institutionalized a sense of entitlement and legitimized the practice of massive deficit spending, burdening future generations with the excesses of today. They say that it has led to a reduction of self-reliance in exchange for greater dependence on government. People's perception on this question often depends on each individual's sense of economic security.
The Great Depression wasn't just an American problem, it was a severe and world -wide economic collapse. Many equate it with the stock market crash that took place on "Black Thursday", October 24, 1929, but the causes of the Great Depression run much deeper than just one day on Wall Street. By the time that Roosevelt came into office on March 4, 1933, the banking system had collapsed, and nearly 25% of the labor force was unemployed. Prices and productivity had both fallen to a third of their 1929 levels andthis resulted in lower incomes in wages, rents, and profits throughout the entire US economy. Factories, mills and mines closed and farms and homes were lost to foreclosure. Most tragically, many people went hungry. At the height of the Depression in 1933, 12,830,000 people ( 24.9% of the total work force) were unemployed. This did not include farmers who, though technically not considered to be unemployed, faced massive decreases in farm commodity prices, such that they could not sell crops for near the cost of growing them. As a result, many farmers lost their land and homes to foreclosure.
The depression caused many in the work force and from farming communities to migrate from their homes in search of work. These migrants would build shanty towns known as "Hoovervilles." In the midwest, the effects of the Depression were made worse by drought and dust storms, causing many to abandon their farms and look for work elsewhere. Many men rode the rails as "hobos" in search of work.
In his speech accepting the Democratic Party nomination in 1932, Roosevelt pledged to bring about "a New Deal for the American people." Following his inauguration as President on March 4, 1933, in the first hundred days of his new administration, FDR pushed through Congress a package of legislation designed to lift the nation out of the Depression. He declared a "banking holiday" to end the runs on the banks. he also created new federal programs administered by a number of "alphabet agencies" from the AAA (Agricultural Adjustment Administration) to the WPA (Works Progress Administration.) These agencies provided jobs to thousands of unemployed Americans in construction and other projects across the country. The NRA (National Recovery Administration) sought to stabilize consumer goods prices through a series of codes. FDR hoped that through employment created by the state and price stabilization, he would put the nation on the road towards recovery.
Roosevelt's New Deal recovery programs were in large measure based on experimentation, though his experiments sometimes contradicted one another. Roosevelt himself said, “It is common sense to take a method and try it; if it fails, admit it frankly and try another.” After a period of gradual recovery, another major recession hit in 1937. Following that recession, Roosevelt adopted the theory of British economist John Maynard Keynes that expanded deficit spending was needed to stimulate aggregate demand. In 1938 the Treasury Department designed programs for public housing, slum clearance, railroad construction, and other massive public works. Many of these were cancelled after more massive public spending was required when World War II broke out, and war-related export demands and expanded government spending led the economy back to full employment capacity production by 1941.
Roosevelt's critics argue that the President was wrong to try to raise prices by creating artificial shortages. They also argue that the Agricultural Adjustment Act of 1933 provided for acreage and production controls, restrictive marketing agreements, and regulatory licensing of processors and dealers “to eliminate unfair practices and charges,” rewarding farmers who cut back production. They cite this as folly at a time when millions could hardly feed and clothe their families, and are at a loss to understand why a program designed to make food and fiber more expensive at that time made any sense.
Almost everyone agrees that Roosevelt’s National Industrial Recovery Act of 1933 was a mistake. It allowed the President to license businesses or control imports to achieve the objectives of the act that were vague at best. To administer the act, Roosevelt established the National Recovery Administration and named General Hugh Johnson. The policy was enforced by a vast system of agents and informers. Eventually the NRA approved 557 basic and 189 supplementary codes, covering about 95 percent of all industrial employees. Big business dominated the writing and implementing of the codes which protected their interests and suppressed competition. These codes included minimum pricing, standardization of products and services, and advance notice of intent to change prices.
Several programs created through the New Deal did have a lasting positive impact on the U.S. economy. which was flagging throughout the 1930s, among them the Social Security Act, which provided income for the elderly, disabled and children of poor families. The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation, which effectively insured the savings of Americans in the event of a bank failure, which was all too common at the time.
Roosevelt's critics assert that FDR and Congress embraced interventionist policies that went too far.and that the New Deal created so much confusion, fear, uncertainty, and hostility among businessmen and investors that private investment never recovered enough to restore the high levels of production and employment enjoyed in the 1920s. They cite the slow rate of recovery, noting that in 1939, ten years after the start of the depression, 9.5 million persons, or 17.2 percent of the labor force, remained officially unemployed.
A Wall Street Journal opinion piece written in February of 2009 argues that the Depression should have been followed by a vigorous recovery, like every other cycle, but it wasn't. They note that productivity grew very rapidly after 1933, and real interest rates were low. They note that some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. Then authors assert that these policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.
Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist state. Keynesian economics became the most influential economic school in the United States during the 1970s and the 1980s.
It is impossible to determine with any level of confidence whether or not, as a whole, FDR's New Deal prolonged the Great Depression or led the country out of it. Like almost all economic policies, it had benefits and detriments, and it left winners and losers. Supporters praise the New Deal for recognizing the government's role in providing compassionate support for those suffering in times of severe economic distress and in creating the social security system. Critics argue that it has institutionalized a sense of entitlement and legitimized the practice of massive deficit spending, burdening future generations with the excesses of today. They say that it has led to a reduction of self-reliance in exchange for greater dependence on government. People's perception on this question often depends on each individual's sense of economic security.